image credit: Zurchers
Dealing with China’s $470 billion bad debt is difficult. Standard Chartered’s China Bohai Bank previously announced that it was selling $4 billion worth of non-performing assets. The country’s property bubble implosion puts lenders under pressure. But purchasers are also struggling.
Tianjin’s Bohai Bank has suffered from the country’s property downturn and sluggish economy. The region, among China’s most indebted, has struggled with falling real estate prices, a key source of local government revenue, and manufacturing overcapacity. Last year, roughly half of Bohai Bank’s 932 billion yuan ($129 billion) loan book was in northern and northeastern China, where its earnings before tax fell to 1.7 billion from 5.5 billion in 2021. Over the same period, the bank’s Hong Kong stock fell 80%.
The $2 billion lender reported 16.5 billion yuan in NPLs in December, 1.8% of gross loans. Problem loans accounted for approximately 5% of NPLs and special-mention loans, which were safer. Bohai Bank aims to sell 29 billion yuan in assets, including principle and interest, at a 40% discount. A 3.8 billion yuan setback will cost the bank more than three-quarters of projected 2023 net profit.
The assets make up less than 2% of Bohai Bank’s total, but they’re 54% larger than the group’s non-performing assets from 2023. The seller appears to be receiving a better bargain. The average principal haircut for similar Tianjin deals over the past three years was 71.7%, according to Bohai Bank.
The transaction places bad bank asset management companies awkwardly. In 1998, Beijing established the Big Four—China Cinda Asset Management China Orient Asset Management, China Citic Financial Asset Management, and China Great Wall Asset Management—to buy problematic debts from the country’s four largest lenders.
The Southeast Asian nation organized a review group last week to consider ways to restore the faltering bourse.
Their balance sheets, capital bases, and profitability are straining after years of fast expansion. Cinda, the strongest of the four and one of six bidders for Bohai Bank’s assets, warned last month that first-half earnings might plummet by 50%. Government figures show banks have $1.1 trillion in non-performing and special-mention loans, up 29% since 2019.
Comment Template